• Sharebar

I know the numerator for calculating break-even point is Fixed Cost, but is the denominator gross margin or contribution margin? I've seen it done both ways and am very confused which one to use.

gross margin=Revenue-Variable Costs and contribution margin=Price-Cost.

Which one is it?

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Comments (5)

  • companion's picture

    Repeat after me:

    When the unit sales price is unknown, to find the break-even REVENUE we do the following:

    =Fixed costs / Contribution margin

  • In reply to companion
    The Situation's picture

    companion:
    Repeat after me:

    When the unit sales price is unknown, to find the break-even REVENUE we do the following:

    =Fixed costs / Contribution margin


    When the unit sales price is unknown, to find the break-even REVENUE we do the following:

    =Fixed costs / Contribution margin

  • In reply to companion
    therock555's picture

    companion:
    Repeat after me:

    When the unit sales price is unknown, to find the break-even REVENUE we do the following:

    =Fixed costs / Contribution margin

    I'm not following. If you don't know price, how would you calculate contribution margin? Seeing that contribution margin=units sales price-unit variable cost.

  • In reply to companion
    LHDan's picture

    companion:
    Repeat after me:

    When the unit sales price is unknown, to find the break-even REVENUE we do the following:

    =Fixed costs / Contribution margin


    False.

    When you do not know what unit selling price is, you can calculate the amount of revenue needed to break event by: FC/CM Ratio

    CM Ratio =/= CM

  • JPMortgage's picture

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